I recently came across a job opening to sustainable investing or ESG investing. It drove me to understand the scope and extent of the industry. The concept of ESG investing has been around for some time. Now it comes with a host of white papers, frameworks, guidelines and has opened up a whole new employment sector. There is more research involved, more dedicated investments and fund managers for this now.
What is ESG investing?
ESG stands for Environmental, Social and Governance the three key factors that carry sustainability forward
So, what has ESG Investing got to do with Financial Services?
There is a concept called Sustainable Investing that forms a part of ESG investing.
A close look at these terms ESG investing and Sustainable investings reveals a number of investing concepts that have been there, but are finding a place under a new umbrella, a broader group. Ethical investing, socially responsible investing, value based (as in moral values) investing are the close cousins of ESG investing.
The investors who prefer ESG or Sustainable Investing will be looking at enterprises with long term outlook for the planet, who follow sustainable practices. The investment decision is based on ESG criteria, rather than financial performance, or together with financial performance
ESG Investing Challenges
The non-financial parameters, whether they translate to profits, or whether they impact and overwhelm the financial parameters, making the business in itself unsustainable
The portfolio available for investing
The due diligence of the companies, whether the sustainability is a sheen at the top or real
Again ESG investors and analyzers can check if only some portion of the businesses they are putting in is applying ESG principles or the business as a whole; if labour is adhering to principles, if supplies are being sourced ethically, if management of waste is conforming to norms, if water management is happening as required, if the sum total of the carbon footprint of the company is uniform or skewed.
ESG investing has become popular over years. In Europe, trillions of Euros falls into this investment category
ESG Resources
UN Global Connect is a great resource for investors and business looking for ESG investing. As per the site there are more than 45 trillion USD worth of assets being managed in responsible investing.
https://www.unglobalcompact.org/take-action/action/private-sustainability-finance
Here are some other ESG resources one can look into
https://www.esg.adec-innovations.com/about-us/faqs/what-is-esg-investing/
Simplistically putting, what is encouraging about ESG investing is that the money pouring into the “green” companies will encourage more and more companies to adopt sustainable practices, which even legislations might not demand, yet.
The SRI or ESG investing sector looks likely to throw up a host of employment opportunities, and that makes it an imperative to understand it more.